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CISI Introduction to Securities and Investments 2025 > Chapter 9 - Taxation, Investment Wrappers and Trusts > Flashcards

Chapter 9 - Taxation, Investment Wrappers and Trusts Flashcards

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SIE Exam flashcards
1
Q

What are the main taxes that affect private investors?

Taxation

A
  • Income tax, capital gains tax (CGT)
  • Stamp duty
  • Inheritance tax (IHT)

Each country has different rules on tax.

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2
Q

What are the three types of domiciles?

Taxation

A
  • Domicile of Origin - where the person is born
  • Domicile of Choice - Where the reside on a permanent basis
  • Domicile of Dependency - where their children, partners, mentally disorders persons depending on them are
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3
Q

If a UK resisdent whose permanent home (docile) is abroad or is a non-resident. What tax do they pay in the UK?

A

Only on income generated in the UK

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4
Q

In the UK, how many days do you need to stay to be classed as a resident?

Additional: What are the other factors making you a resident?

A

183 or more per tax year

Additional: your only home was the UK and you stayed/owned or rented for a minimum of 91 days there and spent 30 days there in the tax year.

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5
Q

What automatically makes you a non-resident?

A
  • Spend fewer than 16 days in the UK
  • Work aborad full time

or spend fewer than 46 days if you have not been classed as UK resident for
the three previous tax years.

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6
Q

What three types of income classes are there?

A
  1. Non-Savings Income (incl. employeement earnings and pension income)
  2. Savings Income (incl. bank interest and bonds)
  3. Dividend Income
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7
Q

Up to what earnings does personal allowance tax apply to?

A

£100,000

Above that, the remaining is put into bands an taxed at different rates

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8
Q

What is the tax free alowance on savings income for the basic rate taxpayer?

known as personal savings allowance

A

£1000

£500 for higher rate tax payers

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9
Q

What is the tax-free dividend allowance for 2023-24 and what basic rate are dividends taxed above that?

A

£1000 and 8.75%

£1000 and 8.75% for basic rate and 33.75% for higher rate tax payers and 39.35% beyond that

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10
Q

Why do we pay National Insurance?

A

To provide UK social security benefits. including the state pension.

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11
Q

Who can claim the UK state benefits?

A
  • The unemployed
  • The low income bracket
  • The ill, disabled or injured
  • Those who have dependants
  • Ages over 60
  • The pregnant, or those who recently had a baby.
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12
Q

What are the UK state benefits?

A
  • Income Support (Universal Credit)
  • Job Seeker Allowance (JSA)
  • Employment and Support Allowance (ESA)
  • Housing Benefit
  • Child Tax Credit
  • Working Tax Credit
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13
Q

When do you pay Capital Gains Tax (CGT)?

A

When you dispose/sell an asset or receive a capital sum e.g. insurance payout for a damaged asset.

Dispose can mean gift, exchange, transfer.

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14
Q

Whats assets are liabile for Capital Gains Tax (CGT)?

A
  • Shares
  • Unit trusts
  • Certain bonds, and
  • Property (except your main home, or principal private residence).
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15
Q

What assets are exempt from Capital Gains Tax (CGT)?

A
  • Main Home
  • Personal Car and other personal possestions (up to £6000)
  • Gilts, Certain Sterling Bonds and Qualifying Corporate Bonds
  • Tax exempt accounts e.g. ISA or approved pensions
  • Gambling, Lottery or Pool Winnings
  • Transfers between spouses.
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16
Q

What is the Ineritance Tax (IHT) nil-rate band (NRB) per person?

A

£325,000

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17
Q

After going over the Nil-Rate Band limit (NRB), what rate are you taxed at?

IHT

A

40%

The nil-rate band limit is £325,000 meaning you pay 0% tax on any less

Additonally if you donate 10% of your wealth on death, the rate will be reduced to 36%

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18
Q

What are the major exemptions on IHT?

Inheritance Tax - when do you not pay any IHT

A
  • Assets are left to the deceased person spouse
  • Assets are left to registered charities
  • Gifts made more thhn 7 years before death
  • NIB rate is transferred to partner with the unsued % added onto theirs.

Max NRB per person is £650,000 if there partner is deceased and no money was payed out as IHT when they passed.
Additionally residence nil-rate band (RNRB) can add another £175,000 for the house if eligable.

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19
Q

What is Residencial Nil-Band Rate (RNRB)?

A

An additon to NBR that if eligible can grant an additonal allowance of £175,000 to reduce the IHT on the persons home.

20
Q

What is the Stamp Duty Reserve Tax (SDRT) and its rate in the UK?

A

0.5%

This when no stock transfer form is used e.g. shares bought on an exchange electornically and procesed through CREST. Rounded to the nearest 1p

21
Q

What is Stamp Duty and its rate?

Not related to SDRT

A

0.5% if there purchase is more than £1,000

This when a stock transfer form is used for buying shares. This is for when you are transferring shares to someone. Rounded to the nearest £5 for what the amount is based on

22
Q

What investments are exempt from Stamp Duty?

A
  • Most foreign Shares
  • OEICS
  • Unit Trusts
  • ETFs
23
Q

What is Stamp Duty Land Tax (SDLT) and its rate?

A

3%
(on those buying a second or more property

An additonal 2% (5) for non UK-residents

24
Q

What is the VAT rate?

A

20%
(applied to taxable goods or services)

Companies,, Broker Commision for execution of stock is all vat-free

25
Q

Who is charged corporation tax (CT)?

A

Limited Companies, Clubs and Associations on gains.
This is charged once a year.
The rate is charged on adjusted profit (before dividend pay and tax).

Self-Employed are excluded from this and are taxed as earning income rate.

26
Q

Who approves an ISA?

A

HM Revenue & Customs (HMRC)

An ISA has to be approved to offer the tax free account. These are offered by Banks, Building Societies and Fund Companies

27
Q

What are the 6 types of ISA?

A
  1. Cash ISA (Savings Account)
  2. Stocks and Shares ISA
  3. Innovative Finance ISA (Peer to Peer lending ISA)
  4. Lifetime ISA (25% government top up) (£4000 Allowance)
  5. Junior ISA (JISA) (Either Cash or Stocks and Shares, Given to Child at 16, Withdrawels start at 18)
  6. Help to Buy ISA (Government top up 25%) (£2400 allowance) (No longer available)
28
Q

What is the subscription limit (ISA Allowance) for a Cash/Stocks and Shares ISA

A

£20,000

29
Q

What is the subscription limit (ISA Allowance) for a Lifetime ISA

A

£4,000

30
Q

What are the benifits of a pension?

A
  • Tax relief on contributions
  • No subject to CGT tax
  • Ability to take the pension from age 55
  • Option to take tax-free lump at retiremnet
  • Includes death benefits
31
Q

What is the current retirement age for state pension?

A

68 for those born after 1968

32
Q

What are the benefits of an occupational pension scheme?

One provided by your work

A

Employers must contribute.
Reduced cost in contrast to personal schemes
The employer has vetted the fund to ensure it is well run.

33
Q

How is an occupational pension scheme structured?

A

As a trust with the investment portfolio managed by professional asset managers.

34
Q

What is a SIPP?

A

Self-Invested Personal Pension - A tax free way to invest that you and your employer pay into. Usually occurs if you want to opt out of your workplace pension.

Contributions are tax deductable and there is no CGT or income tax

35
Q

In pensions, what are the four investment pathways typically offered?

A
  1. No plan to touch money in 5 years
  2. Use money to set up annuity within 5 years
  3. Plan to take money out as long-term income within 5 years
  4. Plan to take all money out within 5 years.
36
Q

What is a Trust?

A

A trust is the legal means by which one person gives property to another person to look after on behalf
of yet another individual or a set of individuals

The creator of the trust is called the settlor (parents) and the person they give it to the trustee (bank). The people who it is inteded for are the benefiaries (children).

37
Q

What are the benifits of creating a trust?

not to be confused with unit trust

A
  1. Provide financial support for children
  2. Reduce IHT
  3. Seperating out rights to income and capital
38
Q

What are the 3 types of trusts?

A
  1. Bare or Absolute Trusts
  2. Interest in Possesion Trust
  3. Discretionary Trust

  1. In which a trustee holds assets for one or more persons absolutely.
  2. In which a beneficiary has a right to the income of the trust during
    their life and the capital passes to others on their death. These include life interest trusts.
  3. In which the trustees have discretion over to whom the capital and income is paid, within certain criteria.
39
Q

What rates of tax will be paid on a dividend by a higher rate taxpayer?

Exam Question

A

33.75%

40
Q

What assets are liable to capital gains tax (CGT)?

Exam Question

A

Shares, Unit Trusts, Certain Bonds and Property

41
Q

When does a liability to CGT arise?

Exam Question

A

Usually anytime an asset is sold that has made a profit

42
Q

How does the eligibility for an individual savings account (ISA) differ between a cash ISA and a stocks and shares ISA?

Exam Question

A

Cash ISA can be opened by 16 years olds

43
Q

What proportion of the annual ISA allowance can be invested in a cash ISA?

Exam Question

A

£20,000

44
Q

What happens to a Junior ISA (JISA) when the child turns 18?

Exam Question

A

It will convert to a Cash ISA or Stocks and Shares ISA where they can have the ability to withdraw.

45
Q

When can a child take over management responsibility for their JISA?

Exam Question

A

16

Although they cant buy shares or withdraw until 18

46
Q

What is the key difference between a defined benefit pension scheme and a defined contribution pension scheme?

Exam Question

A
  • Defined Benifit pays out a % of you final salary based on service years as annuity, you cannot take out a lump sum.
  • Whereas contribution pension is a pot of money you and your employer has put in over the years. You can take this out as a lump sum or have annuity.
47
Q

What is the type of trust in which a trustee holds assets for another person absolutely?

Exam Question

A

Bare Trust (or Absolute Trust)

CISI Introduction to Securities and Investments 2025 (12 decks)

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